Gerhard Schröder's new programme of government promises nothing very much about anything—except a mistimed effort to cut the budget deficit

ANYONE hoping for bold, wide-ranging reforms in Germany can expect to be disappointed. The eagerly awaited coalition agreement between the Social Democrats and their Green allies on government policy over the next four years goes little further than their vague election promises. Labour market reform? Well, as promised earlier, the government says it will implement the ideas of the Hartz commission in full; which, if it happens, is something, though not nearly as much as radicals think Germany needs. Other steps to job-creation? Er, um. Health-care reform? Oh yes, it's needed, but just what, after four years in office, Gerhard Schröder's friends cannot or at least do not say. And much else—or rather, not much else.

Except on public finance. Hans Eichel, the new-old finance minister, admitted this week that there is little prospect he can keep Germany's 2002 budget deficit within the European Union's 3% limit. The new government, due to be sworn in next week, has decided on a slight but perceptible shift in its economic priorities. Boosting the economy and creating jobs will now be given at least equal weight with the consolidation of the budget. Although the government says it remains committed to the EU's stability pact, it has postponed its goal of balancing its books until 2006.

There the good news from the finance ministry stops. The bad news is that Mr Eichel is planning a new package of economic measures, in an attempt to bring the 2003 deficit back below the 3% limit. This would raise tax revenue by euro6.9 billion (say, that figure in dollars) and new borrowing by euro2.6 billion next year—despite solemn election pledges to do neither of these. Mr Eichel plans also to cut spending by euro7.4 billion. Many economists see the overall effect of these measures as a lowering of next year's already feeble expected growth of 1.5% by as much as half.

To raise funds for flood relief in eastern Germany, the old government had already decided to postpone income tax cuts due to start next January 1st by a year, and to impose a one-off levy on corporate profits. To raise revenues without actually “raising taxes”, the new government will abolish various tax breaks, benefits and allowances, quite a different thing.

Companies will face new limits on their ability to set past losses against profits. Energy-intensive ones, which previously got a reduction in the “green” tax on fossil fuels and electricity, will now have to pay the full rate. Tax benefits for home-buyers will be restricted to families with children. Private shareholders, now exempt from capital-gains tax if they hold their shares for more than a year, will no longer be so. Some goods and services now subject to a reduced value-added tax rate will have to bear the full 16% rate.

Though the new government appears to have rejected earlier ideas for a general increase in VAT, higher inheritance taxes or a reintroduced wealth tax, this has not diminished the wrath of business leaders or of the opposition. Mr Schröder will have a tough struggle turning his plans into law. The conservatives have already said they will fight his tax plans when they come before the opposition-controlled Bundesrat, the upper house of parliament.

The main spending cuts will fall on the federal Labour Office, which will see its government grant cut by euro4 billion a year. A further euro2.3 billion is due to be saved by subjecting long-term unemployment benefits to means-testing. Instead of continuing to receive 53-57% of their former wages indefinitely, those jobless who have a wage-earning spouse will have their benefits docked. Better-off Germans will also be asked to pay higher pension contributions. These are levied as a proportion of wages. By raising the ceiling up to which they are taken, the government hopes thereby to stabilise them at 19.3% of gross wages—less than they might have reached, but still up from today's 19.1%.

Say one thing, do another

Mr Schröder, having failed in his past promise to cut Germany's 4m jobless during his first four years, supposedly has made a reduction in unemployment the top priority of his second term. So the government says it wants to lower non-wage labour costs. That rise in pension contributions, small as it it is, will raise them. On top will come a rise in health contributions, they too levied equally on employer and employee. So how will costs be cut? The paper talks vaguely of the need for reform to check spiralling health costs. What reform? It does not say.

Mr Schröder has described his plans for the next four years as “ambitious and realistic”. They are neither.